Cash Dilution in Illiquid Funds
AbstractCash dilution, the effect of performance reduction through cash, exists in almost every illiquid fund. This article provides a brief overview of the problems of cash dilution in illiquid private equity fund of funds, a formula for the calculation of the cost of cash dilution, two possible solutions for the reduction of cash dilution (namely the over-commitment strategy and a formula to calculate the optimal degree of investment in other assets), an evaluation of the effect of cash dilution in private equity fund of funds, and an evaluation of the usefulness of the over-commitment strategy.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 4655.
Date of creation: Apr 2002
Date of revision:
Illiquid Funds; Private Equity; Cash Dilution; Cash Drag; Over-Commitment; Performance; Venture Capital; Buyout; Mezzanine Debt; Investment Strategy; Cash Flow Pattern; Take-Down Pattern; Distribution Pattern;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- M20 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - General
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